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The Economist Gets the Arithmetic of Shorter Work Time Wrong
The Economist warned readers of the error of trying to reduce unemployment by cutting work hours or other such methods, referring to the "lump of labor" fallacy -- the idea that there is a fix demand for labor to be spread around. While the Economist has an arguable case in normal times, it does not have an arguable case in a prolonged period of high unemployment like the current situation.
In the current situation, the notion of a fixed demand for labor (absent some exogenous stimulus) is very much on the mark. We can have 100 million people 40 hours a week or we can have 111 million working 36 hours. Of course, the world is a bit more complicated than this, but the basic arithmetic does hold.
Given that the unemployment rate is almost certain to keep rising for most of the rest of the year, and we are unlikely to see the unemployment rate cross 9.0 percent again for at least a year and a half, it would be nice if our politicians in Washington would start doing some arithmetic and think about this obvious way to deal with the unemployment problem.
--Dean Baker
COMMENTS (12)
The problem is, there are people who are working 40 hours a week because that's the norm and that's what's expected for their companies to give them. They don't have 40 hours of work. If the norm changes (by law), those people may find their hours cut with no corresponding increase in overall employment. This would be more efficient but it would not make us richer.
That said, I prefer a 36-hour week, but more because the emphasis is on leisure. We have a big problem with too many people working 70 hour weeks and getting paid for 40 by their salaries. The ethic needs to change, and that is what I think has happened in France.
Posted by: Mr Duncan | June 19, 2009 7:09 AM
Yes, it is quite true that the amount of work that needs to be done is very definable and easy to "see" whenever there is sufficient slack. I think another idea that would create more incentive for employers to reduce work hours is health care reform. When hours are reduced, health insurance premiums become larger with respect to the total compensation of any given worker. On the flip side, employers might be more willing to hire new employees than work existing ones OT as well, when the economy recovers. I believe the "jobless recoveries" we've seen of late are partly attributable to this phenomenon.
Posted by: Doc at the Radar Station | June 19, 2009 8:27 AM
A major problem in recessions is an excess of savings. If half the population is working and earning more than enough to sustain themselves and putting the rest in the mattress, this is bad. If everybody is working half-time and spending everything, this is better from a strictly economic point of view, let alone humanitarian.
Posted by: skeptonomist | June 19, 2009 8:58 AM
All good points above
Posted by: S Brennan | June 19, 2009 1:05 PM
Is a shorter work week part of the problem, or part of the solution? After all, IIUC, our ancestors worked fewer hours than we do, even some who were what we would consider slave labor. I have heard than Benjamin Franklin, among other thinkers of his time, foresaw the potential in the Industrial Revolution of labor saving devices, and imagined that they would do just that, so that future generations would enjoy more leisure. What went wrong?
Posted by: Min | June 19, 2009 2:05 PM
Before WWII linited work wee laws were in place but were repealed once the war was on.
Posted by: Mike Meyer | June 19, 2009 7:57 PM
Dean- isn't it true that the ave work week at about 33.8 hrs is THE SAME AS EIGHT YEARS AGO? What? 5 years ago? What is the number? Americans are working less hours for basically, THE SAME WAGE, OVER TEN YEARS, the way I see it. Unless you Dean, agree with the Esteemed, Sir Larry Crudlow @ CNBC. And now, employers are dropping health insurance. Oh, but Mr.Esteemed God-like Goldylocks Crudlow wants to include that as part of their wages. I don't know why you go on CNBC! Crudlow shouts you out. You can do we observant Americans a vafor by advocating a FAIRNESS DOCTRINE, where every time CNBC promotes their LIES and PROPAGANDA their would be another voice, the opposing view, good idea?
Posted by: Gordon | June 19, 2009 9:19 PM
OECD statistics on employment/population for selected country/sex/age:
- Men 25-54 2000 to 2008
France 87.1 to 88.3 = +1.2
UK 87.4 to 88.3 = +0.9
USA 89.0 to 87.5 = -1.5
- Women 25-54 2000 to 2008
France 69.6 to 76.1 = +6.5
UK 73.1 to 74.7 = +1.6
USA 74.2 to 74.5 = +0.3
- Both sexes 25-54
France 78.3 to 82.1 = +3.8
UK 80.2 to 81.3 = +1.1
USA 81.5 to 79.9 = -0.6
Posted by: Laurent GUERBY | June 20, 2009 12:07 PM
The Economist is literally a fascist propaganda rag. No one should take anything they say seriously.
Posted by: libhomo | June 20, 2009 8:55 PM
The economist mentioned the "lump of labor" fallacy to warn against early retirement schemes in Western Europe, because they lead in the past to a labor shortage after the recessions. That seems still valid reasoning to me. On the other hand, a temporary shorting of the work week would NOT have the same negative effects once this Great Recession is over.
Posted by: Peter T | June 21, 2009 9:08 PM
Low wage workers can't afford reduced work hours. We have an expanding bottom-wage job market. Recent years have seen an increase in laws/provisions that reduce or eliminate overtime pay. Welfare "reform" created a huge pool of bottom wage and replacement workers at a time when our tax dollars are used to cover the costs of "tax relief" for corporations who use those savings to move our jobs to foreign countries: more workers, fewer jobs. These factors ensure the suppression of wages and elimination of job benefits and security. This generation won't fight back, so we can't expect to see improvements.
So -- we can't afford fewer work hours.
Posted by: DHFabian | June 23, 2009 9:43 AM
i like
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